Overseas Equipment Fuels China’s Capacity Growth Rate

Overseas Equipment Fuels China’s Capacity Growth Rate

By Samuel Ni, SEMI

Examining industry trends over the past five years, China has been the fastest growing region in terms of semiconductor wafer manufacturing capacity growth rate. The strongest growth rate in capacity addition was observed in 2003 and 2004, where capacity increased by 100 percent and 82 percent, respectively. Worldwide, however, semiconductor wafer capacity increased only about four percent in 2003 and nine percent in 2004. In the past few years, the growth rate has declined; it is a signal that China’s chip manufacturers are becoming more cautious in accumulating the capacity. Fab capacity growth will likely trend 15–20 percent per year through 2010.

A key part in China’s fab capacity growth has been, and will remain, capacity that has been transferred from overseas. Capacity transfer refers to capacity added through the acquisition or transfer of used equipment from overseas, as opposed to capacity added through new equipment purchase. Used equipment enters China in one of two ways: a complete set of wafer process equipment is transferred as a used fab (as with the TSMC 200 mm fab in Shanghai and the Hynix-ST 200 mm fab in Wuxi) or used equipment is sold in China on a piece-by-piece basis to help established fabs expand capacity. In either case, some production capacity outside of China ceased as the capacity shifted to China. The total capacity shifted is generally less than the original installed capacity. For example, if a 150 mm fab with 20,000 wafers per month (wpm) capacity transferred to China, it may only have useful capacity of 15,000 wpm because some equipment may be nonfunctional. Thus, no new net capacity is added to the worldwide capacity “balance sheet.”

Figure 1 below highlights 200–300 mm wafer actual and possible capacity transferred by SMIC, HHNEC, HJTC, GSMC, ASMC, Hynix-ST, TSMC, (Shanghai), CSMC, GMIC, ProMOS, PowerChip, IC Spectrum and Intel to China from 2001 through to the 2007–2010 forecast period. The same chart also shows the total capacity in 200 mm equivalents by these chip manufacturers. The ratio of transferred capacity to total capacity demonstrates that China tends to add capacity with transferred equipment.

From 2001 to 2004, a major portion of transferred 200 mm wafer capacity is attributed to TSMC (Shanghai) and HJTC. Hynix-ST’s transfer of a 200 mm fab and the ASMC 200 mm fab expansion made 2006 another peak year for transferred used equipment in China. From 2006 onward, nearly all top-tier fabs in China are either deploying or considering used equipment to expand 200 mm wafer capacity—and this includes SMIC, HHNEC and GSMC. Over the next three years, both the total 200–300 mm capacity growth rate and the growth rate of accumulative capacity transferring will be much less than the growth rate in 2002–2007 period. Although the capacity transfer will remain very active in China, by 2010, almost half of the total 200-300 mm capacity installed in China may be transferred from the overseas market.

Similar to Figure 1, Figure 2 charts the 150 mm wafer capacity for IC transferred to China by CSMC, SG-NEC, Shanghai Beiling, ASMC, BCD, SinoMOS, ACSMC, CSWC, Silan-IC, Founder Microelectronics, Fujian Fushun Microelectronics Co., Ltd., XETC and Anadigics (Kunshan) from 2001 to 2006, and the forecast from 2007 to 2010. It also shows the total 150 mm capacity by these chip manufacturers, as well as the year end accumulative transferred capacity and the growth rate each year.

Figure 2 150 mm Wafer Capacity Transferring to China (K wpm)

Source: SEMI Industry Research and Statistics

The trend of transferring 150 mm wafer production capacity to China is quite different from the 200 mm capacity transfer trend. With CSMC, BCD and the SinoMOS startup, 2003 to 2004 marked the most active years for 150 mm production capacity shift to China. In future years, most of the established 150 mm fab companies will plan to expand with 200 mm fab production. Some existing 125 mm wafer manufacturers may eye expansions by building 150 mm fabs, but for new semiconductor companies that require initial funding from the government and local banks, starting with 150 mm wafer production is unlikely since both the central and local governments are no longer interested in endorsing such fab projects. Overall, the momentum of moving more 150 mm wafer capacity into China is declining among China’s established manufacturers. There will still be some 150 mm capacity transferred to China, and by 2010 the cumulative total transferred 150 mm wafer capacity for IC from overseas may account for 88% of China’s total 150 mm capacity. It should be noticed that some used 150 mm equipment sold in China may be for solar cell production, which is not considered in this report, as some of the above mentioned 150 mm fabs may also enter the solar cell market in the coming years.

For the 125 mm and smaller wafer market, further import of used equipment will be challenging, since sourcing of legacy tools is rare. In addition, the newly implemented China version of RoHSregulation will prevent dumping into China of poorly-conditioned used equipment with more than 10 years service. The already small market share for used 125 mm production equipment will further diminish in the future.